Auditors and liability limitation agreements
Auditors and liability limitation agreements

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Auditors and liability limitation agreements
  • Brexit impact
  • Limiting an auditor’s liability—general prohibition and exceptions
  • Liability limitation agreement
  • Requirements relating to the terms of a liability limitation agreement
  • Members’ authorisation of a liability limitation agreement
  • The effect of a liability limitation agreement—the 'fair and reasonable' test
  • Disclosure of a liability limitation agreement
  • Liability limitation agreements and listed companies
  • Liability limitation agreements—accountants' perspective

There are statutory provisions relating to the liability of an auditor of a company and the limits that may be placed upon it. Prior to 6 April 2008, a company could not exempt or indemnify its auditors from liability for any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts. However, such exemption or indemnification is now permitted, provided it takes the form of an indemnity for the costs of successfully defending proceedings or a liability limitation agreement.

In addition, there may be other rules relating to a company’s obligations in relation to audit and auditors that apply to a listed company, an AIM company or a company with securities that are listed on the AQSE Main Market, AQSE Growth Market or AQSE Trading (formerly NEX Exchange Main Board, NEX Exchange Growth Market and NEX Exchange Secondary Market), but these are outside the scope of this Practice Note.

Some or all of the statutory provisions relating to auditors and liability limitation agreements may also apply to other companies and entities, but these are outside the scope of this Practice Note.

Brexit impact

The UK audit regime may be affected by Brexit. For further details of its impact, see Brexit—statutory audit.

Limiting an auditor’s liability—general prohibition and exceptions

There are statutory provisions that create a general prohibition

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